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How Does Net Metering Work? (State-by-State Net Metering Policies in 2022)

Solar energy has many environmental and financial benefits. There is also Federal Income Tax Credit, but net metering is one of the most noteworthy solar energy incentives. It is more rewarding because it is recurring and will benefit you as long as your system lasts. Also, depending on your system’s size, it can help eliminate your electricity bill altogether. 

So, what is net metering? How does net metering work? What are net metering policies in different states? 

Scroll down as we discuss net metering and everything you need to know about net metering in detail below. 

What is net metering? 

Net metering, formally called net energy metering (NEM), is a billing arrangement in which you give a part of the energy your solar system generates to the grid. In return, you are given energy credits, which are adjusted in your electricity bill. In net metering, you are only charged for the “net” electricity you consume. 

For example, solar systems installed on rooftops may generate more power than you need during the daytime. Usually, energy consumption is low during those hours. So, what do you do with the surplus power? 

If you have an off-grid or hybrid system, you can store it in your batteries. But sometimes, the power generated is still in excess. That excess power goes to the grid. Net metering requires special meters, which can run both in both directions. When the energy flows back to the grid, your meter will run backward, generating energy credits. In grid-tied solar systems, all the surplus power goes directly to the grid—the grid is more like the giant battery bank that gives you power back in times of need. 

How does net metering work? 

Net metering works simply by tracking the number of units consumed at home plus the number of units sent back to the grid. At the time of solar installation, a bidirectional meter is installed on your property to measure electricity coming and leaving your home—or business. 

As we discussed, right-sized solar systems usually generate more electricity during the day (especially between 10:00 am and 2:00 pm). But it is also the time that we use the least amount of electricity. This surplus power is sent to the grid. If you have imported more electricity at the end of the billing cycle, you will get your adjusted bill. But if you have exported more power to the grid, you will gain energy credits. 

Different states have different policies on energy credits. Some states allow the credits to be rolled over indefinitely and be available for consumption at the right time.

This works for solar owners, as solar systems generate more power in summer, but their performance drops in winter.

In winter, you can reduce your electricity bill by using the energy credits granted to you.

Utilities in some states, such as California, also pay cash for the credits granted at the end of a 12-month period. In theory, some states offer no compensation, such as Alabama and South Dakota.  

Net metering policies and rate structures vary across states—we will discuss net metering state by state in a while. 

Benefits of net metering 

Net metering emerged in the United States first time in Minnesota in 1983 to allow anyone generating less than 40kW of power to feed it to the grid. Since then, it has spread worldwide, especially more so after the solar revolution. This quick adoption of net metering is because of its real-time and numerous benefits, some of which are as follows:

Saves on utility bills 

First and foremost, net metering helps solar system owners save on their electricity bills. Even without net metering, solar systems save customers on their electricity bills. But sometimes, solar systems generate more electricity than owners need. In contrast, they also consume the grid electricity at other times, such as at night or when it is cloudy. 

This is where net metering plays a central role in offsetting the overall costs of your electricity. You give your surplus energy to the grid and draw energy from it when needed, reducing your bill at the end of the billing cycle. So much so that you could potentially make your electricity bill zero—but this is only in theory, as there are some fixed costs you will have to pay no matter what! 

Takes the burden off the grid 

During summer, electricity is more in demand. Guess what happens? Millions of solar customers give utilities across the country much-needed electricity their systems generate in the daytime, reducing the burden off the grid. In fact, solar reduces the pressure on the grid in two ways. It not only saves solar owners customers on their electricity bills but even those who have not installed solar. 

Think it like this: In 2021, solar produced 115 billion kWh of power. If there was no solar, utilities would have to get this power from other sources, most likely fossil fuels, to meet the growing demands. This would have potentially made electricity more expensive for all—those who have installed solar systems and otherwise. 

Shortens solar payback period 

Solar payback refers to the amount of time your solar system takes to save you as much on your electricity bills as you paid for installing it. In states that have net metering policies, the solar payback period is shorter than in those lacking it. The period becomes even shorter in states that offer retail rates to consumers for their generated electricity.

State policies on net metering 

Net metering policies vary across states. As the data collected by the Database of State Incentives for Renewables and Efficiency shows, 39 states, in addition to Washington DC, and four US territories, have mandatory net metering policies. 

US map of net metering by DSIRE

Source: Database of State Incentives for Renewables & Efficiency (DSIRE)

Below is the breakdown of net metering policies in different states. This table also includes states that are in transition to policies other than net metering. States that offer distributed generation compensation other than net metering are also included in the given table. These states do not offer net metering, and in some cases, the alternatives are less than ideal for net metering

State Implementation by Rate/net excess generation Allowed system capacity
Alaska State Credited to next bill at non-firm power rate; carried over indefinitely25 kW
Washington State Credited to consumers’ next bill at retail rate; granted to the utility at the end of the annual billing period100 kW 
Oregon StateCredited at the retail rate to the next month for Investors-owned utilities (IOU) customers; varies for others 2 MW (non-residential) and 25 kW (residential) for PGE and PacifiCorp consumers; 25 kW for all customers of municipalities, co-op, and PUD customers. 
California State Credited to customer’s next bill at retail rate. At the end of the billing cycle, customers could either choose to be paid in cash or roll over. 100% of the customer’s annual load – for systems operated by, owned by, or on property under the control of local governments or a university
Arizona State The net excess energy generation (NEG) for residential systems is credited at an Arizona Corporation Commission-approved rate; the export compensation rates vary across utilities. No limit is defined, but systems should be sized so as not to exceed the customer’s 125% of the total connected load. 
Nevada State For systems up to 25kW, the NEG is credited to at 75% of the retail rate; for systems between 25 kW and 1 MW, the NEG is netted monthly at the retail rate. Whatever is lesser than 1 MW or 100% of the customer’s estimated annual electricity requirements
Montana State Credited to customer’s next bill at retail rate; granted to the utility at the end of the 12-month period50 kW 
Wyoming State Credited to the next bill as a kWh credit; the excess is reconciled annually at a seasonal avoided-cost rate25 kW 
Colorado State Credited to next bill at retail rate. After the billing cycle, the IOU customers may opt to roll over credit indefinitely or receive payment at an average hourly incremental cost. Municipality and co-ops provide annual adjustmentNo limit specified 
New Mexico State Credited to the next bill at avoided cost rates or credited and rolled over to the customer’s account indefinitely 80 MW 
Oklahoma State Consumers are compensated monthly at avoided cost rates Up to 300 kW
Kansas State Credited to the customer’s next bill at the retail rate for systems in operation before July 1, 2014, and at the average cost rate for systems that began operating on or after July 1, 2014; the NEG expires on March 31 each year100 kW for non-residential; 15 kW for residential; 150 kW for schools
Nebraska State Credited to customer’s next bill at avoided-cost rate; the excess is reconciled annually at avoided-cost rate25 kW 
North Dakota State Adjusted monthly at avoided cost rate 100 kW 
Minnesota State Net excess generation can be reconciled monthly for systems under 40 kW. Customers may choose to be paid or credited to the next month at the retail rate. Those between 40 kW to 1 MW systems are credited at the avoided cost rate. Read more here1 MW 
Iowa State Credited to customer’s next bill at retail rate; excess credits paid annually at avoided cost rate.1 MW 
Missouri State Credited to customer’s next bill at avoided-cost rate; the NEG credits expire after 12 months100 kW 
Arkansas State Credited to customers’ next bill at retail rate; credits can be carried forward to subsequent billing cycles indefinitely.
Utilities must compensate the NEG after two years of accumulation at the annual average wholesale avoided cost.
Residential: 25kW or 100% of the customer’s highest monthly usage in the previous 12 months.
Commercial: 300kW (unless higher allowed by the commission).
Wisconsin State Varies from utility to utility20 kW, but some utilities also allow larger systems
Utah State There are different schedules, each with a different rate. See this for schedules and tariffs 170 MW-DC for residential and small non-residential70 MW-DC for large non-residential
Illinois State Non-competitive solar customer: credited to the consumer’s next bill at retail rate; for competitive customers, it is credited at the electricity provider’s avoided cost rates. Follow the link for more details about competitive and non-competitive5 MW 
Kentucky State Credited to next bill; carries over indefinitely45 kW 
Indiana State Same as Kentucky’s 1 MW 
West Virginia State Credited to the customer’s next bill at the retail rate with no perpetual rolloverIOUs with more than 30,000 customers: 500 kW for commercial and 25 kW for residential.
IOUs with fewer than 30,000 customers, municipal utilities and co-ops: 50 kW for commercial and 25 kW for residential.
Ohio State Credited to next bill at unbundled generation rate; customers may request payment for excess at the end of the 12-month billing periodNo limit defined 
Georgia State Credited to next month’s bill at predetermined rates 10 kW for residential; 125% of estimated demand for commercial 
Florida State Credited to next bill at retail rate; excess generation is reconciled annually at avoided cost rates2 MW 
South Carolina State Credited to customer’s next bill every month; annual payout to customers at the avoided cost rate 20 kW for residential; 1000 kW for non-residential
Michigan State Credited to next bill at the retail rate for systems up to 20 kW; credited to customer’s next bill at power supply component of retail rate for larger systems; roles over indefinitely.150 kW 
North Carolina State Credited to consumers’ bills at the retail rateCustomer-owned systems: 1 MW Leased PV residential systems: Lesser of 20 kW or 100% of estimated demand Leased PV non-residential: Lesser of 100 kW or 100% of estimated demand
Virginia StateCredited to next month’s bill at retail rate; customers can opt for payment or rollover at the end of the billing cycle. 20 kW for residential;1,000 kW for non-residential;
500 kW (aggregated capacity) for agricultural systems;
All systems must be sized not to exceed customers’ annual load.
Pennsylvania State Credited to customer’s next bill at full retail rate; adjusted annually at price-to-compare*Up to 50 kW for residential
3 MW for non-residential
Maryland State Credited to next month’s bill at retail rate; adjusted annually in April at the commodity energy supply rate 2 MW (30 kW for micro-CHP);
Limited to that needed to meet 200% of annual baseline customer electricity usage
New Jersey State Credited to consumers’ bills at the retail rateThe energy generation should not exceed the customer’s annual on-site consumption  
New York State The NEG for existing net metered is credited to the customer’s next monthly bill at retail rates; reconciled annually at avoided cost rates  25 kW for residential, 100 kW for farms, and 2 MW for non-residential
Connecticut State Rolled over as credit for one year; reimbursed to the consumer at avoided cost* at the end of the yearStandard net metering: 2 MW Virtual net metering*: 3 MW 
Rhode Island State The (NEG) is credited to customers at the avoided cost rate; rolled over to the next bill, or purchased by the utility10 MW; Systems must be designed to generate no more than an average of three years of the annual consumption of energy. 
Delaware State Credited to next bill at the retail rate, except for certain community-owned facilities. After the 12-month cycle, customers may decide to roll over credit indefinitely or receive payment for credit at the energy supply rate.Non-residential Delmarva Customers: 2 MW
Non-residential co-op and municipality customers: 500 kW
Residential customers: 25 kW
Massachusetts State Varies by class and system type10 MW for net metering by a municipality or other governmental entity; 2 MW “Class III” systems, 1 MW for “Class II” systems, and 60 kW for “Class I” systems. Read more here about different  class systems
Vermont State Credited to customer’s next bill at the blended residential rate; excess credits not used within one year of  generation are granted to utilityGenerally, up to 500 kW
New Hampshire State Credited to the customer’s next bill as a kWh credit with an indefinite rollover; customers may like to receive payment at the avoided cost rate for any excess credit remaining at the end of the year1 MW 
Louisiana State Credited to the customer’s next bill at the retail rate with perpetual rollover for customers who were interconnected before the utility reached 0.5% of its retail peak load net metering cap; other customers are to be credited for the excess generation at the utility’s avoided cost rate.300 kW for commercial and agricultural, 25 kW for residential;
Systems larger than 300 kW are to be evaluated by the Public Service Commission on a case-by-case basis.
Maine StateRollover to the next billing period; granted to the utility at the end of the 12-month billing cycle660 kW for IOU customers; 100 kW for municipality and co-op customers (municipalities and co-ops may voluntarily offer participation for systems up to 660 kW)
MississippiState The NEG is sold to the utility at avoided costs; the credit is carried forward indefinitely 20 kW for residential; 2 MW for non-residential 
Washington DC State Credited to the next bill at the retail rate for systems under 100kW and at the generation rate for systems up to 1 MW2022: 160% of historical annual usage 2023: 180% of historical annual usage 2024: 200% of historical annual usage
Hawaii StateCredited to customer’s next bill at utility-specific rates 100 kW for HECO, MECO, and HELCO customers; 50 kW for KIUC customers

*Avoided cost rate: Unlike the retail rate, which includes all costs associated with producing energy, operating and maintaining the grid, and other utility expenses, avoided costs primarily reflect the utility’s cost of producing electricity. 

*Virtual net metering (VNM): VNM is an arrangement of distributing the energy credits among members of a shared solar system (as in community solar).

*Price-to-compare rate: The price-to-compare includes the generation and transmission costs of a utility’s retail rate but not the distribution component. 

The rules in Mississippi are discussed under net metering above. But the policy, named Net Renewable Generation Rules, adopted by the Mississippi’s Public Service Commission is not what is generally meant by net metering. It is a relatively new approach towards excess generation, where residents will be paid an amount equivalent to the total value of electricity consumed and the value of any excess generation that flows to the grid. In this policy, the excess generation is not adjusted one-to-one against energy consumption over the billing period. 

Similarly, in Arizona, it is net billing and not net metering. Like in Mississippi, starting from 2016, net excess generation is not netted against net energy consumption one-to-one in Arizona. Utah is another state that has what is called ‘net billing.’ Consumers are paid for their net excess generation, but the rules are different than standard net metering. 

Texas and Idaho do not offer net metering as a state policy. But certain utilities across these states offer voluntary net metering mechanisms to their customers. For example, Green Mount Energy, El Paso Electric Company, and the City of Brenham offer net metering with varying system capacities and net excess generation adjustment mechanisms in Texas. In Idaho, Avista Corp, Idaho Power Co., and PacifiCorp offer net metering to their consumers with up to 100 kW system capacity. 

The above table omits Alabama and South Dakota because they do not offer any unique arrangement akin to net metering.

Alabama has virtually no state and utility incentives, though Alabama Power offers a less-than-ideal alternative to net metering.

In South Dakota, solar owners who generate their own electricity send excess power to the grid at much lower avoided cost rates, which vary across utilities. 

The four US territories with mandatory net metering policies are American Samoa, the US Virgin Islands, Puerto Rico, and Guam.

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